To IMF or not to IMF? Part - II

This is part two of this two-part series on clearing the confusion regarding the IMF programme. Moving on with my analysis:

Q5: Will this set of policies revive growth and employment and help the middle class? These reforms are necessary if long-term fiscal control is to be achieved. For decades, governments have taken the approach that for fiscal control, the expenditure regime should remain unchanged while arbitrary taxes should be arbitrarily used. As is evident, this approach has proved extremely inadequate, landing us repeatedly into a crisis. In addition, arbitrary poorly thought-out policies have slowed down growth and productivity as well as investment.

These measures will easily take about three to four years to implement, even with a fully committed and strong government. But they alone will not accelerate growth.

To meet the employment needs of our youthful and growing population Pakistan must grow at over eight percent per annum for the next 25 years. For this, additional reform is a must. The government must undertake reform for: developing serious policymaking and governance, by rolling back the Raj administration and legal system. In doing so, it must develop processes for serious analysis, research and policy development and monitoring and evaluation. Without a concerted effort to reform our inherited colonial system, the economy will never work to capacity. We can’t run with a colonial legal and judicial system and colonial legal system. The world has moved and so must we.

The Raj administration civil service must be reformed to do modern governance through rights, policy, monitoring and evaluation and not by direct controls and patronage. Such a system confuses control with policy and leads to waste. Currently one closed civil service system controls all government with junior grades and civil servants responsible for local government, mid-level responsible for provincial government and as they get senior, they control the federation. This is inefficient, wasteful and destructive.

Even our democratic processes – election systems, power-sharing, workings of parties parliamentary and government systems, term limits, constituency sizes – need review to ensure that effective legislation and parliamentary review routinely happens. We need to develop capacity for market regulation that fosters competition, innovation and entrepreneurship as well as bankruptcy. There is a need to review markets to ensure competitive practices and markets with entry and exit.

We also need to phase out all protection and subsidies in a five-year framework even if it means some industry must exit. There is also a need to develop an approach to pricing water on actual use everywhere to begin rationalising its use and as a prelude to a sensible water policy.

Gas companies should be restructured to develop a gas market around the LNG system. They should be restructured into smaller companies but operating on a profit-making centre, not on the current model of return on assets.

We should revive regulation by professionalisation and autotomising regulatory agencies beyond politics and administration, and also reform the public investment project for efficiency and yield. In the immediate five years, we should commit to new public-sector development projects. Meanwhile, we could develop plans to consolidate investment and current budgets as in the rest of the world. In doing so, we move away from our current input-based budget framework to performance budgeting through the medium-Term budgetary framework (MTBF). Only mega projects that involve many sectors and agencies will then remain with the Planning Commission. The Planning Commission will manage the MTBF and the performance-based management system.

Local government is recognised by this government as important for service delivery and therefore for growth and broader development. Local government must empower city and metropolitan areas to grow into investment, entrepreneurship and innovation powerhouses. Local government of the type required cannot happen with the colonial civil service, meant more for rural magistracy.

The incumbent government picked the right slogan ‘;5 million houses, 10 million jobs’. It appropriately notes the role of the construction industry in a city as a leading industry. It also correctly pinpoints how the building industry has a knock-in effect on the economy. However, the government is being misled into thinking that government land and capital has to go into this project of house-building. If this project is to be done well, it has to be seen as more than house-building.

In reality it is a large city building project where sprawling cities with housing colonies with single family homes will be densified with the housing unit as a flat. It will raise tower cranes all over Pakistan by prioritising high-rises and denser developments. Local governments must be prepared for this change in policy to provide a supporting role to denser development. The current approach to city development has impeded development and hence stifled investment to the point that national investment and growth are being choked.

The government must stop hogging prime land for its official housing and its offices; this retards investment and employment. If this land is released for investment in a properly packaged city regeneration package for high-rise, mixed-use development, it will generate jobs and economic growth.

Q6: Are you saying there is a huge agenda even beyond the IMF?

We need the reform for ourselves, not the IMF. With years of research, this agenda seems clear and succinct. However, it is a huge agenda and will take years to implement even with capacity of high quality, which we don’t have. As it is, this agenda is hard to comprehend in its fullness and we see commentators rush to the old failed model of ‘government begging from foreigners and giving goodies to locals’.

Society must begin to understand how we can grow the economy and get out of this failed stabilisation approach which seeks to preserve colonial models of the past.

The decision in reality, dear prime minister, is not whether to go to the IMF or not. It is whether to move from the colonial Raj system to the twenty-first century. For that we need to undertake a lengthy and careful agenda of economic, administrative, legal and social reform. We must do it in keeping with what you promised for 22 years. The IMF is only a stepping stone. Step over it fast but then lead reform for the next five years even if it means more dharnas and battles.

Concluded

The writer is former deputy chairman of the Planning Commission.

Email: nhaque_imf@yahoo.com

Twitter: @nadeemhaque

Website: http://development20.blogs pot.com